Board of Directors Resolution No. 164 of 2020 Concerning Licensing Rules and Procedures for Companies Seeking to Engage in Medium and Small Enterprise Financing and Microfinance Activities

Egyptian Financial Regulatory Authority
Board of Directors Resolution No. 164 of 2020
Dated 28/10/2020
Concerning the rules and procedures for licensing companies wishing to engage in the activity of financing medium and small enterprises, and companies wishing to engage in the activities of financing medium and small enterprises and financing micro-enterprises.

The Board of Directors of the Egyptian Financial Regulatory Authority, Having reviewed:

• The Law on Joint Stock Companies, Companies Limited by Shares, Limited Liability Companies, and Single-Person Companies issued by Law No. 159 of 1981;
• Law No. 10 of 2009 concerning the regulation of supervision over markets and non-banking financial instruments;
• Law No. 141 of 2014 concerning the regulation of the activity of financing medium, small, and micro-enterprises;
• The Law on the Development of Medium, Small, and Micro-Enterprises issued by Law No. 152 of 2020;
• The Board of Directors Resolution No. 53 of 2018 concerning the controls for granting and maintaining licenses and the rules for owning shares of companies operating in non-banking financial activities;
• The Board of Directors Resolution No. 121 of 2018 concerning the conditions, rules, and procedures for licensing companies to engage in microfinance activities;
• The Board of Directors Resolution No. 84 of 2019 regarding the reorganization of controls for registration, continued registration, and deletion in the register of auditors with the Authority;
• The Board of Directors Resolution No. 100 of 2020 concerning corporate governance rules for companies operating in the field of non-banking financial activities;
  And after approval by the Board of Directors in its session held on 28/10/2020;

First - Companies wishing to engage in the activity of financing medium and small enterprises

(Article One)
Companies - under establishment - wishing to engage in the activity of financing medium and small enterprises must comply with the following:

1. The company must be established in the form of a joint stock company.
2. Fulfill the conditions stated in items (1, 2, 3) of Article Three of this Resolution.
3. No final judgment of a felony or misdemeanor penalty for a crime involving honor or trust, or for one of the serious crimes stipulated in the laws regulating non-banking financial activities or stipulated in the Central Bank and Banking System Law or the Anti-Money Laundering Law, shall have been issued against any of the founders or principal shareholders of the company during the five years preceding the submission of the request for preliminary approval for establishment (1).
4. No judgments declaring bankruptcy or insolvency shall have been issued against any of the founders or principal shareholders of the company during the five years preceding the submission of the request for approval for establishment.

(1) Serious crimes in the provisions of this Resolution refer to crimes punishable by imprisonment or a fine, the maximum limit of which is not less than five thousand pounds in any of the laws regulating non-banking financial activities, the Central Bank and Banking System Law, or the Anti-Money Laundering Law.

(Article Two)
The company - under establishment - wishing to engage in the activity of financing medium and small enterprises shall submit a request for preliminary approval for establishment on the form prepared by the Authority for this purpose, accompanied by the following:

1. Powers of attorney issued by the founders to the agent.
2. A declaration from the founders' agent that the activity will be conducted in accordance with Law No. 141 of 2014 mentioned above and the resolutions issued in implementation thereof.
3. A statement of the issued and paid-up capital.
4. Documents confirming that no final criminal judgments have been issued for one of the crimes stipulated in Article One of this Resolution against the categories mentioned therein, as well as documents confirming that no judgments declaring bankruptcy or insolvency have been issued against them.
5. A preliminary business plan for the company including the company's vision and strategies.
6. Proof of payment of ten thousand pounds for the examination of the preliminary approval request for establishment.

(Article Three)
Companies wishing to obtain a license from the Authority to engage in the activity of financing medium and small enterprises must fulfill the following conditions:

1. The company's issued and paid-up capital must not be less than thirty million Egyptian pounds.
2. The company's activity must be limited to practicing the activity of financing medium and small enterprises, unless licensed to engage in microfinance activities in accordance with the provisions of this Resolution or unless licensed to engage in other non-banking financial activities in accordance with the controls set by the Board of Directors.
3. Legal persons must constitute at least (50%) of the company's capital among its founders, and the share of financial institutions must not be less than (25%) of its capital.
4. Board members must hold a high qualification.
5. The following experience conditions must be met:
   (a) Two-thirds of the board members must have practical experience of not less than five years in one of the fields of banking and/or non-banking financing work, including at least one legal member.
   (b) The Managing Director of the company must have experience in one of the fields of banking and/or non-banking financing work of not less than ten years, in addition to having previously held a supervisory position of an appropriate level in one of the Egyptian or non-Egyptian financial institutions. Regarding the Director of Finance, Credit, Risk, and Internal Audit departments, suitable practical experience of not less than seven years related to project management must be available in them, and in the fields of banking financing or non-banking financing work for candidates for credit and risk management positions. The categories mentioned in items (b) and (c) must pass the personal interview conducted by the Authority regarding this matter.
6. No final judgments of a felony or misdemeanor penalty for a crime involving honor or trust, or for one of the serious crimes stipulated in the laws regulating non-banking financial activities or stipulated in the Central Bank and Banking System Law or the Anti-Money Laundering Law, shall have been issued against any of the founders, principal shareholders, board members, or senior managers of the company during the five years preceding the submission of the license request, unless they have been pardoned.
7. No judgments declaring bankruptcy or insolvency shall have been issued against any of the founders or principal shareholders of the company during the five years preceding the submission of the license request.
8. The company must have an independent headquarters dedicated to the activity, equipped with the necessary facilities, technological infrastructure, and information systems to practice the activity in accordance with the requirements specified by the Authority.
9. The company must have at least one auditor from among the auditors registered in the register of auditors with the Authority in accordance with the provisions of Board of Directors Resolution No. 84 of 2019 mentioned above.
10. Compliance with the corporate governance rules for companies operating in the field of non-banking financial activities issued by the Board of Directors.
11. Payment of the license fee for engaging in the activity at a rate of (1%) of the company's paid-up capital.

(Article Four)
The request for a license to engage in the activity of financing medium and small enterprises shall be submitted on the form prepared by the Authority for this purpose, completed with documents demonstrating compliance with the conditions stated in Article Three of this Resolution, in addition to fulfilling the following documents:

1. The preliminary contract of the company and its articles of association, authenticated by the competent administrative authority.
2. A recent extract from the commercial register for the company, and a copy of the tax card.
3. A statement of the names of shareholders, their nationality, and the percentage of each shareholder's contribution to the company's capital.
4. A statement of contributions representing at least (10%) in any other financial institutions operating in Egypt and owned by the founders or shareholders whose ownership percentage exceeds (10%) of the company's shares.
5. A declaration from the company's legal representative committing to comply with the rules and controls for practicing the activity, as well as the anti-money laundering and counter-terrorism financing controls issued by the Authority, and that the company has the technical capabilities, information systems, and controls and policies for granting financing, evaluating customer creditworthiness, risk and financial management mechanisms, debt collection, monitoring financing operations, and customer complaint inspection systems, and completing the organizational structure and administrative infrastructure and internal work regulations and policies in accordance with the requirements of the mentioned resolutions.
6. A declaration from the Managing Director that he is responsible for the actual management of the company with full dedication to it, as well as a declaration from the Director of Finance, Credit, Risk, and Internal Audit departments that each of them is dedicated to their work with the company.
7. A copy of the national ID card for the Chairman and members of the Board of Directors, and a copy of the passport if any of them is a foreigner.
8. A photocopy of the proof of possession of the company's headquarters, whether by lease or ownership.
9. The commitment to join the membership of the Egyptian Federation for Financing Medium, Small, and Micro-Enterprises, and documents confirming contracting with one of the credit information companies licensed by the Central Bank of Egypt to inquire about customers.

Second - Companies wishing to engage in the activities of financing medium and small enterprises and financing micro-enterprises

(Article Five)
Companies - under establishment - wishing to obtain a license from the Authority to engage in the activities of financing medium and small enterprises and financing micro-enterprises must comply with the following:

1. The provisions contained in this Resolution regarding obtaining preliminary approval for establishment.
2. Fulfilling the conditions and documents required to obtain a license to engage in each of the two activities, while observing the conditions that must be met when combining the two activities as mentioned in Article Six of this Resolution.
3. The company must have at least one auditor from among the auditors registered in the register of auditors with the Authority in accordance with the provisions of Board of Directors Resolution No. 84 of 2019 mentioned above.
4. Fulfilling the minimum capital required for each of the two activities.
5. Payment of the license fee for engaging in the activity at a rate of (1%) of the company's paid-up capital.

Third - Companies holding a license to engage in either the activity of financing medium and small enterprises or financing micro-enterprises and wishing to obtain a license for another activity

(Article Six)
Companies holding a license from the Authority to engage in either the activity of financing micro-enterprises or financing medium and small enterprises, if they wish to obtain a license from the Authority to engage in the other activity, must fulfill the following conditions:

1. Fulfilling the minimum capital and experience conditions required in the activity for which the company wishes to obtain a license.
2. Approval of the General Assembly of the Company to engage in the required additional activity, with a commitment to include the new activity in its articles of association upon issuance of the license by the Authority.
3. The availability of a detailed business plan including mechanisms for practicing the existing activity and the activity to be added, and risk management tools for each.
4. Each activity must have an independent management for operating the activity and customer affairs, as well as the company keeping separate financial accounts for engaging in the activity of financing medium and small enterprises and preparing separate financial statements in accordance with the controls issued by the Authority in this regard.
5. There must be a Managing Director for each of the two activities.
6. The company's accounts must be audited by at least one auditor from among the auditors registered in the register of auditors with the Authority in accordance with the provisions of Board of Directors Resolution No. 84 of 2019 mentioned above.
7. No final judicial judgments against the company for one of the crimes stipulated in Law No. 141 of 2014 concerning the regulation of financing medium, small, and micro-enterprises shall have been issued during the three years preceding the submission of the request, or any administrative measures or penalties other than a warning during the three years preceding the submission of the request, unless the reasons for them have been removed and six months have passed since that removal.

(Article Seven)
The request for a license to engage in the activity of financing medium and small enterprises or financing micro-enterprises, in accordance with Article Six, shall be submitted on the form prepared by the Authority for this purpose, completed with documents demonstrating compliance with the conditions stated in Article Six of this Resolution, in addition to fulfilling the following documents:

1. A declaration from the company's legal representative regarding keeping separate financial accounts for engaging in the activity of financing medium and small enterprises, and preparing separate financial statements in accordance with the controls issued by the Authority in this regard.
2. An economic feasibility study including a future business plan for a period of not less than three years for the company, its vision and strategy in engaging in the financing activities to be practiced collectively, and risk management, including the minimum targeted market share, targeted geographic areas, targeted customer segments, operational mechanisms, types of financing products, and acceptable risk levels, and operating economics, to be certified by the company and/or a specialized consulting office.
3. The organizational structure of the company, clearly and specifically indicating the mechanism for practicing the new activity to be practiced for different functions (job title, and number) and job description cards for them, and a timeline for filling planned human resources in accordance with the submitted business plan and the conditions and requirements for licensing in this regard.

Fourth - General Provisions

(Article Eight)
The Authority shall issue a receipt certificate to the license applicant for engaging in any of the activities mentioned in this Resolution upon submission of the required documents if they are complete. The Authority shall conduct a desk examination of the license request and documents submitted in this regard, and form a committee within the Authority for field inspection to verify the availability of administrative and informational infrastructure, organizational structure, and other requirements stated in item (5) of Article Four of this Resolution, with the committee depositing a report on this matter within a period not exceeding two weeks from the date of the company's completion of the project and requirements. The Authority shall consider the company regarding what it must complete in case of non-compliance with these conditions or requirements. The Authority is committed to ruling on the license request within two weeks from the date of the company's completion of the project and requirements mentioned, with the decision being reasoned if issued. Failure to respond to the request within the mentioned period is considered a rejection of it.

(Article Nine)
The Board of Directors Resolution No. 53 of 2018 concerning the controls for granting and maintaining licenses and the rules for owning shares of companies operating in non-banking financial activities shall remain in force, insofar as no specific provision is stated therein in the provisions of this Resolution.

(Article Ten)
This Resolution shall be published in the Egyptian Gazette and on the Authority's website, and shall be implemented from the day following the date of its publication in the Egyptian Gazette.

Chairman of the Board of Directors
Dr. Mohamed Omran